The device, which is known as a Cubesat, is the size of a loaf of bread and weighs about four kilograms.

University of New South Wales Canberra space director Professor Russell Boyce said, while small, the spacecraft had a big task ahead.

"It's got an onboard capability to listen to objects on the surface of the earth, in particular we are interested in ships, so it's assisting the defence force in maritime surveillance," Professor Boyce said.

Another two satellites, each twice the size of the first satellite, are scheduled to be completed by 2019.

"They will not just have the software to find radio, but also some optical telescopes and cameras," Professor Boyce said.

Defence Industry Minister Christopher Pyne said the data collected from the satellites could assist military spy planes with their work, and help detect asylum seeker boats.

"To ensure that whatever is in our waters north of Australia, or coming towards Australia, is something that we see before they are in a position to do us any danger, or indeed support the current surveillance operations that interdict people smuggling or illegal fishing," he said.

Space industry's slow growth

The funding is just a small part of the Government's plan to invest $10 billion over the next decade into space-related technology.

UNSW Canberra has teamed up with the Royal Australian Air Force to complete the project, which will also provide research and educational opportunities.

Mr Pyne said the long-term aim was to have more satellites built locally, to reduce Australia's reliance on international companies.

"Australia's had space capability, but it's always been somebody else's capability that we have purchased," Mr Pyne said.

"The new approach is to build our own capabilities, which gives Australian sovereignty in defence in terms of space, and that's a very exciting development."

Professor Boyce said the space industry was slowly starting to grow in Australia.

"We are starting to see the possibility for Australia to develop some technologies that we can use for our own purposes and then we can add to the international effort with international partners such as the US or Europe," he said.

"And in times of need we can start to rely on our own capabilities and not be at risk."